Bank Mandiri plans merger with smaller rivals

Rendi A. Witular, Jakarta

State-controlled Bank Mandiri, the country's largest bank in terms of assets, has proposed that it should merge with smaller, rival banks before 2007 in a bid to become the leader in the local banking industry and a prominent player in the region.

Mandiri president E.C.W. Neloe said a merger with other banks was part of the bank's plan to become an international player, as recommended by the Indonesian Banking Landscape (API), a blueprint for the future of the banking industry produced recently by the central bank.

"A merger is unavoidable if we want to become the leader in the domestic industry and a regional player by 2007 ... However, we haven't targeted any banks yet," said Neloe after attending the bank's annual shareholders meeting on Wednesday.

The bank, with assets of Rp 249 trillion (US$29 billion), would merge with banks that had no overlapping business with Mandiri, he said.

Neloe explained that in order to become an international player, Mandiri would need at least Rp 50 trillion (US$5.81 billion) in capital as stipulated by the API.

"To achieve this, local banks, including Mandiri, would need to merge with others or else they would all be left behind by their giant global competitors. Currently, Mandiri only has around Rp 20 trillion in capital," he said.

The shareholders meeting approved the bank's plan to allocate 50 percent of its 2003 net profit, or Rp 2.3 trillion, as a dividend.

Mandiri shares ended Rp 75 lower at Rp 1,375 on the Jakarta Stock Exchange on Wednesday.

Mandiri's merger plan comes on the heels of the proposal by another state-owned bank, Bank Negara Indonesia (BNI), to merge with Bank Permata so as to strengthen its financial capabilities and expand its business.

BNI and Permata are respectively the country's second and seventh largest banks in terms of assets. BNI has assets worth Rp 131 trillion (US$19 billion) and Permata about Rp 30 trillion.

Meanwhile, the secretary to the State Minister for State Enterprises, Bacelius Ruru, said on Wednesday that his office and the Ministry of Finance were currently in the process of evaluating BNI's merger proposal.

BNI comes under the supervision of the Office of the State Minister for State Enterprises, while Permata comes under the supervision of state-owned asset manager PT Perusahaan Pengelola Aset (PPA), which is accountable to the Ministry of Finance.

The president of the PPA, Muhammad Syahrial, said the company would kick off a tender process in the coming weeks to select companies to advise the government on the merger plan. They would assess whether Permata was indeed ready for such a merger.

The government and the House of Representatives' Commission IX for financial affairs would jointly discuss the findings of the study and make a decision on the merger plan, said Syahrial after attending the Mandiri shareholders meeting.